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Corporate Culture and Big Pay Come to Nonprofit Testing Service

Buoyed by growing revenue, the Educational Testing Service, the not-for-profit group that produces the SAT, the Advanced Placement exams and the Graduate Record Exams, last year gave one-time bonuses of as much as $366,000 to 15 of its officers.

E.T.S., the world's largest testing organization, has traditionally paid salaries comparable to those at colleges, universities, and groups like the College Board, which administers the tests that the service devises for it.

But under the leadership of Kurt Landgraf, a former chief operating officer of the DuPont Company who became president of E.T.S. two years ago, compensation has soared.

Mr. Landgraf himself received nearly $800,000 for his first 10 months on the job -- about twice as much as Gaston Caperton, who heads the College Board -- and more than all but two college presidents in the nation. One new vice president earned $25,700 for her first five weeks on the job and received a one-time payment of $212,306.

E.T.S. was founded in 1947 as a tax-exempt organization to meet the growing demand for admissions tests for colleges and graduate schools. In large part, the pay changes reflect the service's conversion from an entity staffed mostly by academics to one that is run by executives recruited from the corporate world and that had revenue of more than $700 million in the last fiscal year.

Mr. Landgraf said the new compensation system was necessary to attract the people the service needs to help expand beyond college testing into a more global business. Those involve several new areas of operation, including English tests in countries like China, and state elementary-school assessment tests throughout the United States.

''This is a billion-dollar commercial entity,'' Mr. Landgraf said. ''We're an organization with a very strong social mission, but we are also a very large commercial enterprise. Our compensation is based on the simple principle that we have to attract people who can help us grow, and while we can never pay what DuPont or General Electric does, because we don't have tools like stock options, we can use incentive pay and other cash payments.''

Tax lawyers said that if a nonprofit seemed to be cashing out most of its excess revenues in the form of bonuses, that could be improper. But Mr. Landgraf said, ''We are not doing anything like that, and we are nowhere near the line.''

The bonuses totaled some $2 million for the fiscal year ending in June 2001, when the service had an operating surplus of $34 million.

Others take a different view, arguing that because the service is a tax-exempt group, it must operate in the public interest, and that it should use surplus revenue to reduce fees, not to enrich its officers.

''This money comes directly out of the pockets of test-takers, their parents and taxpayers from states that contract with E.T.S., people who have no choice but to pay for these tests,'' said Robert Schaeffer, the public education director of Fairtest, an advocacy group critical of standardized testing. ''It's very sad to think how many families' SAT and A.P. fees went straight into bonuses.''

More than two million students take the SAT each year, which costs $26, in line with the $25 the other leading college admissions test, ACT, charges. Fewer take the G.R.E., which costs $115, or the graduate management admissions test -- the G.M.A.T. -- which costs $200, exams that hold virtual monopolies in their fields. In all, the service says it develops and administers more than 12 million tests worldwide.

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He said that in some cases, specific payments were needed to recruit key people or to cover their relocation costs.

Yvette Donado, who joined E.T.S. as a vice president for human resources five weeks before the close of the fiscal year in June 2001, received $25,700 in salary and got a $215,306 one-time payment.

''That represented what I was leaving behind, which was a 26-year career for a technology company that had profit-sharing and all kinds of perks that don't exist in this environment,'' Ms. Donado said.

Two other officials who joined E.T.S. in January 2001 -- Arthur Chisholm, vice president for information systems and technology; and Leslie Francis, vice president for communications and public affairs -- were also given one-time payments ($151,237 and $178,355, respectively) that substantially exceeded their salaries.

Others who had been at the service well before Mr. Landgraf's arrival received large incentive payments. For example, John Yopp, a vice president for graduate and professional education, had base pay of $200,861 and a bonus of $191,157. Mari Pearlman, a vice president in the service's teaching and learning division, earned $200,783 and received a bonus of $164,381.

Mr. Landgraf said the service would probably keep using incentives, depending on its performance.

Bonuses are not unheard of in the academic and foundation world, but they are usually far more modest, amounting to perhaps 5 or 10 percent of base pay.

Frank R. Gatti, the chief financial officer of E.T.S., though, maintained that the service should not be compared to foundations or colleges.

''Other than the fact that the word 'education' appears in our name, we are less comparable to academic institutions than to large health care systems, which have to compete for talent with for-profits,'' he said. At larger nonprofit hospitals, it is not uncommon for the chief executive to be paid more than $1 million a year.

Through much of the 1990's, E.T.S. lost money. In the fiscal year ended July 1998, it had a deficit of $8.2 million. In 1999, the deficit was reduced to $206,256, and in 2000 -- the year before Mr. Landgraf arrived -- the service had an operating surplus of $29 million, which grew to $34 million last year.

E.T.S. has expanded rapidly in recent years, moving aggressively into the huge new market for state assessment tests created by the federal No Child Left Behind Act, which requires that every student from third grade through eighth grade be tested every year.

Mr. Landgraf said that in the next four years, the service's main business would cease to be the SAT, which it produces for the College Board. Instead, he said, E.T.S. would probably earn 40 percent of its revenues from international testing, with large contracts in China and India, and another 40 percent from state assessment testing. E.T.S. is also expanding into professional development for teachers.

Traditionally, testing in kindergarten through 12th grade has been the domain of textbook publishers, but E.T.S. has won the contract to handle all of California's assessment tests, as well as some testing in New Jersey, Georgia and Maryland.

Like E.T.S., the College Board has recently moved in a more commercial direction, creating a for-profit subsidiary, collegeboard.com, which earns money by selling products to help students prepare for the SAT -- and by charging students and parents extra fees for services like getting scores a few days early or being notified of the scores by telephone.

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A version of this article appears in print on November 23, 2002, on Page A00001 of the National edition with the headline: Corporate Culture and Big Pay Come to Nonprofit Testing Service. Order Reprints|Today's Paper|Subscribe